Oct. 17 (LPAC)--The Financial Crimes reports today that big U.S. commercial banks are choking on a debt glut that will cut their ability to issue new loans.

The banks have had to take $280 billion in new debt onto their balance sheets since the start of August. These are the commercial paper and leveraged loans that investors refused to buy, the paper reported, citing Merrill Lynch economist David Rosenberg. At the same time, Rosenberg said, Federal Reserve data shows that large bank capital (net assets) have gone down by $40 billion since the credit crunch hit in August. "This has never happened over such a short time frame," he said, and the situation is "rather serious, because such a steep and sudden compression in large bank capital has the potential to create a negative lending environment."

European banks are in a similar situation. Rosenberg said that the large banks are "choking on assets they did not plan on having," which is "tying up regulatory capital" and "possibly leading to reduction in credit extension."